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State Sovereign Immunity Does Not Apply in IPRs

A recent Federal Circuit opinion held that state sovereignty does not shield states from  inter partes review (“IPR”) before the Patent Trial and Appeal Board (the “Board”). Regents of the Univ. of Minn. V. LSI Corp., No. 2018-1559 (Fed. Cir. June 14, 2019) (opinion available here). This decision is another strike against sovereign immunity following a similar Federal Circuit decision in 2018 holding that IPR proceedings were not barred by tribal sovereign immunity. Saint Regis Mohawk Tribe v. Mylan Pharm. Inc., 896 F.3d 1322 (Fed. Cir. 2018), cert. denied, 139 S. Ct. 1547 (2019).

Background

The Regents of the University of Minnesota (“UMN”) own several patents that it asserted against different entities in district court. UMN claimed LSI Corporation (“LSI”) infringed its patents directed to particular types of “read channel” chips (U.S. Patent No. 5,859,601). In a separate case, UMN sued customers using Ericsson Inc. (“Ericsson”) products over patents directed to 4G LTE technology (U.S. Patent Nos. 7,251,768; 7,292,647; 8,588,317; 8,718,185; and 8,774,309).

Both LSI and Ericsson independently challenged the validity of the asserted patents in IPR petitions. Before the Board made any institution decisions, UMN filed a motion to dismiss in each proceeding based on state sovereign immunity. An expanded panel concluded that state sovereign immunity applied in IPR proceedings, but UMN waived its immunity when it filed lawsuits against the petitioners. The LSI and Ericsson cases were consolidated when UMN appealed the Board’s decisions. The Federal Circuit also allowed Gilead Sciences, Inc. to intervene because it was facing the same issue in its IPR petitions.

The Federal Circuit’s Reasoning

After a lengthy discussion of the history of patent review proceedings, the Federal Circuit focused on three factors that made IPRs more like an agency enforcement action—where state sovereign immunity would not apply—rather than a civil suit brought by a private party—which may be barred by state sovereign immunity.

First, although a private party may file the IPR petition, it is an executive branch official who decides to proceed against the sovereign. The decision to institute an IPR proceeding is within the discretion of the Director of the USPTO, not the petitioner. The court also noted the broad ability of any person who is not the owner of the patent to file an IPR petition, even a person lacking constitutional standing, as distinguishing the IPR process from a common-law cause of action.

Second, the Board may proceed even if the petitioner or patent owner declines to participate in the IPR. This suggests it is the agency that is acting and not the parties, which is very different from what would occur in district court, where civil litigation would terminate if the parties ceased to participate in the proceedings.

Third, IPR procedures are different from those in civil litigation. The court listed a few notable differences: the Federal Rules of Civil Procedure do not apply in an IPR; a patent owner may substantively amend its claims during an IPR, but not in civil litigation; and the scope and availability of discovery and live hearings are greatly limited in IPR proceedings.

These factors, combined with the historical purpose of patent review proceedings to allow the USPTO to reevaluate issued patents, led the Federal Circuit to conclude “that [IPR] proceedings are designed to allow the USPTO to harness third parties for the agency to evaluate whether a prior grant of a public franchise was wrong.” Regents of the Univ. of Minn., slip op. at 22. The court compared this to a situation where an agency brings an action based upon information provided by a third party. In such a situation, where it is the federal agency bringing the action against a state sovereign, the court said the state sovereign’s immunity is not implicated.

Additional Views of Circuit Judges Dyk, Wallach, and Hughes

In addition to the opinion of the court, all three judges on the Federal Circuit panel jointly filed additional views to address state sovereign immunity of in rem proceedings. The judges addressed whether such immunity would apply if an IPR proceeding is deemed an adversarial proceeding between private parties. In their view, an IPR is the type of in rem proceeding that Supreme Court precedence suggests would not implicate state sovereign immunity.

The judges distinguished situations where a proceeding seeks personal jurisdiction over a state which is “normally an indignity to the sovereignty of a state,” quoting Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 453 (2004). Because in rem proceedings do not require personal jurisdiction, the risk of such indignity to the state is not an issue. The judges noted that not all in rem proceedings are immune from state sovereign immunity claims, such as those involving the state’s real and personal property used solely for governmental purposes, but distinguished patents because of their intangible nature and the inability to physically possess patents.

The judges analogized an IPR proceeding to the bankruptcy proceeding in Tennessee Student Assistance Corp. In that case, the Supreme Court determined the state did not have sovereign immunity when a student sought to have state-funded student loans discharged because of the in rem nature of the bankruptcy proceedings. This was partially based on the fact there were no monetary damages or any affirmative relief from the state in such a bankruptcy proceeding. The Federal Circuit judges considered reevaluating the issuance of a patent to be a similar situation, noting the only possible relief in an IPR is revocation of a previously granted patent. The similarity extended further in that neither proceeding has a statutory requirement compelling the state to participate. Therefore, the judges concluded an IPR is the type of in rem proceeding that should not be barred by state sovereign immunity.

Conclusion

This decision and the decision in Saint Regis foreclose many if not all arguments against IPR based on sovereign immunity. While the court did not explicitly address other post-grant proceedings at the USPTO, the court’s reasoning seems equally applicable to other post-grant proceedings.